After spending most of the last month trading between .8400 & .8500, the pound broke this trading range in the last week or so. The impetus for this move was a big miss on the UK Retail Sales data which came in at a disappointing -1.4% against market expectations of +0.1%. We also had the minutes of the Bank of England monetary policy meeting which showed that members preserved their 6- 3 vote to hold asset purchases at £375bl. While the market expected a 6 -3 outcome, it is thought that a significant number of market participants had expected a 7 – 2 or even an 8 -1 result. Then on Wednesday of this week we had a big miss on the CBI reported sales number, coming in at -11% against an expected -1% outcome. All of this taken together saw sustained Stg selling with Eur/Gbp Resistance first at .8475 taken out aswell as further Resistances at .8498, .8525 and .8551 before reaching a high of .8600.
What now for Stg?
As the month has drawn to a close we have repeatedly tested the highs (.8595/00) and as I write we are back at the .8540/50 level on the back of profit taking and strong support for the Cable at 1.5010 that has seen it retrace to 1.5225. This retracement resulted from general dollar weakness & record short contracts (77K) on the IMM, all of this prompted profit taking each time the Eur/Gbp approached .8600. Over the last week we have seen that UK GDP for Q1 has come in as expected at +0.3%. Service growth in March is a tad firmer than consensus at +0.2% (consensus 0.1%). This data is similar to recent releases all of which have been reflective of an anaemic recovery of the UK economy. While we broadly traded .8400 to .8500 for the last month, since the 22nd of April we have traded in a wider .8400 to .8600 range. As mentioned we have repeatedly tested the top of this wider range over the last number of sessions, a sustained break of .8600 could see Eur/Gbp re-test the year highs of .8815 posted on the 25th of February. However we are approaching the summer season, when traditionally tight ranges rein so history favours Stg remaining in the .8400 – .8600 range. What could scupper this hypothesis? Poor data, Mark Carney, sustained Dollar weakness, resumption of the Euro crisis, end of Asset purchases in the US, negative deposit rates in Europe, a stock market crash and many more. All of this reminds me again why predicting FX movements is a recipe for egg on one’s face!